By Ellen Zhang and Kevin Yao
BEIJING (Reuters) – China pledged on Thursday to increase the budget deficit, issue more debt and loosen monetary policy to maintain a stable economic growth rate as it girds for more trade tensions with the U.S. as Donald Trump returns to the White House.
The remarks came in a state media readout of an annual agenda-setting meeting of China’s top leaders, known as the Central Economic Work Conference (CEWC), held on Dec. 11-12.
“The adverse impact brought by changes in the external environment has deepened,” national broadcaster CCTV said following the closed-door CEWC.
This year’s meeting came with the world’s second-largest economy stuttering due to a severe property market crisis, high local government debt and weak domestic demand. Exports, one of the few bright spots, face the threat of higher U.S. tariffs.
A separate readout from state news agency Xinhua, watched by financial markets for references to the yuan currency, kept a pledge to “maintain the basic stability of the exchange rate at a reasonable and balanced level”.
CEWC summaries from 2020, 2022 and 2023 also contained this line, which was not included in those from 2019 and 2021.
Reuters reported on Wednesday that China’s top leaders and policymakers are considering allowing the yuan to weaken next year to mitigate the impact of punitive trade measures.
The CEWC pledges match the tone of one of the Communist Party leaders’ most dovish statements in more than a decade, which was released on Monday after a meeting of the Politburo, a top decision-making body.
The Politburo said China would switch to an “appropriately loose” monetary policy stance and “more proactive” fiscal levers, as well as stepping up “unconventional counter-cyclical adjustments”.
In the same vein, the CEWC summary flagged a higher budget deficit and more debt issuance at a central and local government level. Leaders also vowed to reduce bank reserve requirements and cut interest rates “in a timely manner”.
“The direction is clear, but the size of stimulus matters, which we probably will find out only after the U.S. announces the tariffs,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
This dovish shift in messaging shows China is prioritising growth over financial risks, analysts said.
At CEWC, Beijing sets targets for economic growth, the budget deficit, debt issuance and other variables for the year ahead. The targets are agreed at the meeting, but won’t be officially released until an annual parliament meeting in March.
Reuters reported last month that government advisers had recommended that Beijing keep its growth target of around 5% unchanged next year.
The CEWC readout said it was “necessary to maintain steady economic growth”, but did not mention a specific number.
“Maintaining 5% will be quite challenging in 2025, given that the extra ‘Trump shock’ will hit exports” and capital expenditure, said Xu Tianchen, senior economist at the Economist Intelligence Unit.
“However, a good level of stimulus will prevent a freefall, and I don’t think growth will tank below 4.5%.”
TARIFF THREATS
Trump’s tariff threats have rattled China’s industrial complex, which sells goods worth more than $400 billion annually to the United States. Many manufacturers have been shifting production abroad to escape tariffs.
Exporters say the levies will further shrink profits, hurting jobs, investment and growth in the process. They would also exacerbate China’s industrial overcapacity and deflationary pressures, analysts said.
If exports take a hit, China needs to look internally for a new growth engine. But consumers feel less wealthy due to falling property prices and minimal social welfare. Low household demand poses a key risk to growth.
Beijing has issued increasingly forceful statements on boosting consumption throughout the year, but it has offered little in terms of policies apart from a subsidy scheme for purchases of cars, appliances and a few other goods.
The CEWC summary said the scheme would be expanded and pensions raised, and that efforts would be made to increase household incomes and “vigorously boost consumption”.
“Markets could be encouraged,” Lynn Song, ING’s chief economist for Greater China, said. “The call to vigorously boost consumption is a good sign.”
